After first ignoring advice from Apple's chief executive Tim Cook not to speculate on rumors related to the company's supply chain, the Wall Street Journal has subsequently toned down its alarmist story of iPhone 5c cuts and retailer discounting.

Yesterday, the Journal joined Reuters and other major media outlets in targeting Apple's iPhone 5c with speculative, worrisome concerns based on assumptions and guesswork built on top of poorly conceived interpretations of unverified data.

Little knowledge a dangerous thing

Under the initial headline "Apple Cuts iPhone 5C Orders," a report by Lorraine Luk, Eva Dou and Ian Sherr for the Wall Street Journal outlined supplier cuts it defined as less than 20 percent at Pegatron and "one-third" at Foxconn.

The article didn't outline how many iPhone 5c models Apple had been building, or how many it planned to build at launch or throughout the quarter, or if the changes were planned in advance or in response to production yields.

Instead, the financial journal simply speculated that the undefined "reduced orders" could be "fueling concerns about weaker-than-expected consumer demand and the company's pricing strategy."

Five paragraphs into the article, the report noted, "Apple meanwhile has increased this quarter's orders for the iPhone 5S," but again it did not report how many of those models Apple was said to be building or whether rumors of production issues had played a factor in the orders changing.

A shifting story

By the end of the day, the paper changed its headline to "Apple's Dual iPhone Strategy in Doubt," shifting the narrative to focus on the idea that Apple's plan to "broaden its appeal with a cheaper version of the iPhone [...] appears to be faltering after a few weeks."

The revised story cited an executive from Orange as saying that the new iPhone 5c "isn't selling as well as expected because it is too expensive, and the older iPhone 4S remains an attractive, cheaper option," an apparent contradiction of the report's core suggestion that a cheaper version of the iPhone isn't actually broadening its appeal.

Orange didn't detail of how many units it was selling of each iPhone model, and the Wall Street Journal didn't explain how it might be better for Apple to be selling more iPhone 5c models, which would either come at the expense of the high end iPhone 5s or the lower end iPhone 4s.

As it is, available data estimates from CIRP indicate that Apple's best, most expensive model makes up the majority of sales (64 percent), while iPhone 5c is second at 27 percent and lower end models are a distant third, making up less than ten percent.

Despite identifying a problem to worry about, the Wall Street Journal didn't articulate a potential solution outside of backing certain analysts who have claimed Apple should somehow be selling an even cheaper 5c, an idea contradicted by the concentration of demand at the higher end of Apple's product mix.

Indeed, as the Journal observed in its second edition, "the fact that the 5C appears to have missed Apple's expectations may not be all bad, especially if it means consumers are buying more of the 5S, the higher-end iPhone that came out at the same time last month and sells for $100 more."

The revised version of the story also now mentions by its third paragraph that Apple is said to have increased production orders for its high end iPhone 5s.

The danger of supply chain speculation

A parallel report by Clare Jim and Paul Carsten for Reuters similarly speculated about changes in supply chain orders, while also also hedging its bets by noting that "analysts and Apple executives have cautioned against reading too much into supply chain adjustments, which are common in the fast-moving electronics industry."

Not only was that information subsequently found to have inappropriately leaked to hedge fund SAC Capital, allowing that firm advanced opportunity to profit from the stock selloff Citi's predictions triggered, but the information itself was not correct. Apple's iPhone 5 was the world's top selling smartphone and continued to enjoy rapid sales even as investors began dumping Apple's stock on the "news" that its phone wasn't selling.

Such "supply chain orders" weren't just scandalously used to fuel insider trading (Citi was subsequently slapped with a $30 million fine for this), but they were false information that had a very material, negative impact on Apple's business.

That false information was subsequently picked up by journalists and spread around throughout 2013, creating the impression that Apple was faltering and poised to lose its leadership position to Samsung, a preposterous charade some journalists still continue to repeat, despite a preponderance of evidence against such a conclusion.

Can't check a channel you don't understand

In Apple's January quarterly earnings conference call, Cook warned analysts, "the supply chain is very complex, and we obviously have multiple sources for things. Even if a particular data point were factual, it would be impossible to interpret that data point as to what it meant for our business.""Even if a particular data point were factual, it would be impossible to interpret that data point as to what it meant for our business." - Tim Cook

Cook continued to recommend that analysts not base their predictions on supply chain "checks" throughout 2013. However, a series of analysts have continued to issue "supply chain check" reports that fueled headlines despite being, more often that not, completely wrong.

"Channel checks" were cited in March as evidence of a new Apple TV set top box that never materialized. Similar "checks" were also cited in June as proof iPhone production was being cut, just before the company reported unusually strong smartphone sales over the summer.

Journalists and bloggers have also jumped on the bandwagon, issuing "reports" of their own that confidently arrive at conclusions based on scraps of supply chain rumors.

As analyst Benedict Evans noted, "people really ought to have learned that supply chain production volume rumours for iPhones are worthless," adding, "the 5c could be a total flop but supply chain rumours wouldn't tell us either way. Too many variables."

After the past couple of years, people really ought to have learned that supply chain production volume rumours for iPhones are worthless

Certain analysts appeared driven to promote such "supply chain reports" by a desire to prove that their predictions of a cheap iPhone 5c were not actually wrong. By turning things upside-down, they can use "channel checks" to affirm that it was instead Apple that was wrong for not actually doing what they said the company would do.

For example, Piper Jaffray analyst Gene Munster and Jefferies' Peter Misek both made unflattering predictions about iPhone 5 sales and this year's iPhone 5c/5s launch based on "supply chain checks," then punished the company with downgrades after they were proven wrong in both cases.

They're slashing the price!

In addition to supply chain checks, media reports have also fixated on iPhone 5c price cuts, both in the U.S. and in China. The Wall Street Journal wrote that such discounting by retailers "signals that interest in the 5C has been weak."

That's an incredible conclusion to draw given that iPhone 5c is within the top three smartphone models across all four major U.S. carriers, and is outselling Samsung's Galaxy S4 flagship on half of them.

Source: Canaccord Genuity monthly wireless store surveys

The Journal backtracked slightly in its revised story, stating that "reduced orders could indicate weak demand, or could signal that Apple wanted to ensure adequate supply of the 5C so that potential buyers, who were more likely to be switching from competing phones, didn't have to walk out of a store empty-handed."

It noted that the "the choice of colors, and a need for retailers to have supplies of each," would have required a faster initial inventory build, and added that Apple may have built more models up front in preparation for its China Mobile launch, which hasn't yet solidified in a deal. By the end of the second story, it appears that the story is that there isn't any real story to tell at this point, just three weeks after the launch of the newest iPhones.

Apple doesn't slash prices of slow sellers

On top of lacking a verifiable demand problem, there's also the fact that Apple itself has historically never discounted products, even ones that were not selling well.

Initial editions of Apple TV (which the company's executives later euphemistically described as a "hobby") were never discounted just to move boxes, nor was the Mac mini, which also appeared to gain less traction in the market than the company had initially expected.

Sales of Apple's Power Mac G4 Cube (above), an expensive machine released with unfortunate timing just as the 2000 dotcom bubble was bursting, were very disappointing to the company, but the model wasn't rapidly discounted.

Similarly, while Apple doesn't detail iPod sales by individual model, certain models have been much more popular than others but none were discounted to "move" slower selling devices, and certainly not just weeks after launch.

In fact, the only major product where Apple slashed the price shortly after its launch was the original 2007 iPhone, and that repricing was done after initial sales established that there was major demand for the new device, enough to warrant lowering its price to grab even more volume.

"The surveys are in and iPhone customer satisfaction scores are higher than we've ever seen for any Apple product," Steve Jobs announced at the time. "We've clearly got a breakthrough product and we want to make it affordable for even more customers as we enter this holiday season."

The very idea that Apple would discount its iPhone 5c shortly after launch in order to "move inventory" is bewildering to anyone who has watched the company over even just the past few years. Apple does not discount products. Also, Apple hasn't discounted its own iPhone 5c pricing, online or in its retail stores.

Even many of Apple's competitors, when faced with slack sales and general disinterest in their products, have rarely resorted to significant discounting until it was absolutely necessary to clear out unsold inventories. Microsoft didn't immediately discount the Zune, or Zune HD, or Surface RT or Surface Pro until those products had suffered complete humiliation on the shelf, ignored by customers for an entire year.

This all happened before

Discount retailers like BestBuy, Radio Shacks and Walmart have discounted iPhone 5c, along with certain mobile carriers. Those parties have a variety of motivations for discounting Apple's phone. Even as a loss leader, an iPhone 5c sale brings customers into their stores and sells lucrative data contracts, accessory sales and other purchases.

Further, there's nothing new about Apple's retail partners, particularly discount retailers, advertising lower prices for Apple's gear, from iPods to iPhones and iPads. Amazon, Target and Walmart have all long advertised incentive price discounts for Apple's products, for example.

Perhaps most bizarrely, the iPhone 5c discounts offered by a variety of retailers and certain carriers are being cited as evidence that Apple's "pricing strategy" was wrong. If Apple had priced the iPhone 5c any lower, it would be harder for Walmart and China Telecom to offer any pricing incentives of their own. Profit margins at every retailer would be slimmer, and Apple's own profits would be lower across the board.

By setting the price it did, Apple gave itself, and its retail partners, additional flexibility on pricing. So not only are analysts and reporters confusing their audiences with blatantly incorrect predictions based on supply chain speculation, but they're also completely off base in their criticism of a pricing strategy that is working correctly by design, regardless of whether the iPhone 5c is selling well right now or not.

There is no justice on AAPL. Any bullshit that sounds logically correct can apply on Apple .

Headlines like this may make AAPL drop :
Check on Foxconn food supplier on food orders cut implies Apple doesn't need so many people to make iPhones so there is no need to order some much rice.Edited by crazy_mac_lover - 10/17/13 at 2:44am

Last month analysts and their conspirators in media complain the 5c isn't cheap enough. This month, the problem now is that the 5c is in fact cheaper because of competitive discounting from retailers. Apple can't win, except where counts... more money in it's coffers rather than the carriers.

2) "People who are really serious about their products should also do their own predictions"

3)

Quote:

Sales of Apple's Power Mac G4 Cube (above), an expensive machine released with unfortunate timing just as the 2000 dotcom bubble was bursting, were very disappointing to the company, but the model wasn't rapidly discounted.

WSJ, NYT, CNBC, CNN, FOX and even ABC like to make up something salacious to report about Apple on a periodic basis. A disappointing thing about these news reporting outlets is they get away with willfully spreading false information nearly every day. They bring analysts into the false reporting and the analysts willingly corroborate the false information. Even when all involved know they are wrong they do it.

Sales of Apple's Power Mac G4 Cube (above), an expensive machine released with unfortunate timing just as the 2000 dotcom bubble was bursting, were very disappointing to the company, but the model wasn't rapidly discounted.

I don't think the PowerMac G4 Cube poor sales can be attribute to the Dotcom bubble burst. It was a strange product with fashion over functionality with a very bad price spot. The unexpendable G4 cube without the screen was about 200$ more expensive than a iMac, and 150 less than a full PowerMac G4.

If Apple sold 5 million iPhone 5s phones but the 3 million iPhone 5c phones which 85% of were sold to new customers and the remaining 1 million iPhones sold were the 4s. Now with these numbers, you have to look beyond the 1-3ish ratio of 5s to 5c and consider the possibility of how many new iPhone users were pulled from competing manufactures.

I agree with most in that the "press" tries to much to spread a negative word. Negativity is as the media has know for years what sells. I just wish people were held responsible for impacting stories that are found not to be generally true in essence.

During September, the iPhone 5S accounted for 64 percent of all Apple smartphone sales, easily topping the iPhone 5C's 27 percent share, according to data obtained by All Things Digital from research firm Consumer Intelligence Research Partners (CIRP). Just 9 percent of customers bought the iPhone 4S last month.

That the 5C is selling 27% compared to the 64% for the 5S is actually expected at this very early stage of the products' lifecycles. Remember that there are a whole lot of iPhone 4S first-adopters coming off their 2-year contracts from September/October 2011 who are eager to upgrade. Tell me why on earth these customers would want last year's iPhone 5 w/ plastic body (meaning the 5C), if they purposefully bought the top-of-the-line 4S two years ago? Wouldn't it make sense they'd go top-of-the-line again this round? So it makes perfect sense that the 5S is selling 64% to 27%. Now if the 5C was being outsold - or close to being outsold - by the 4S and its "free" price on contract, then there should be cause for concern about the success of the 5C. But 27% is three times the 9% share of the 4S. So I'd say the 5C is still holding its own and is attractive for the price-conscious newbies who are most likely coming over from Android, BlackBerry, or an iPhone 3GS. I think that starting in the first quarter of next year, the 5C will see higher share, as the renewals of customers' 2-year carrier contracts settle down, thus the 5S demand backing off a little bit.

I don't think the PowerMac G4 Cube poor sales can be attribute to the Dotcom bubble burst. It was a strange product with fashion over functionality with a very bad price spot. The unexpendable G4 cube without the screen was about 200$ more expensive than a iMac, and 150 less than a full PowerMac G4.

I disagree that the Cube put fashion over functionality. It was a beautiful product, that was designed well. Like the Mac Mini, it had a very small footprint. Unlike other towers, it used convection cooling. It also came with very nice Harmon Karmon speakers. So, if you wanted a small quiet Mac, the Cube might have been a good choice. The lack of upgradability in comparison to the tower, and no audio input might have played into some people's decision making.

I would guess a combination of things went to it not selling well, part of which you point out. It costa little more than an iMac,but less than the entry level Tower. There was also some people complaining, which the media jumped all over, that the clear acrylic casing developed hairline cracks. If I recall, the economy that year effected a lot of companies. Apple took a huge write down. At my University's computer store I purchased the $1799 mid level Power Mac for $1599. Apple threw in a free $799 see through acrylic external monitor.

You have to remember that most journalist fail to understand math and science thus the reason they went into the liberal arts. They can not do, so they write. They lack the ability to critical think, analyze and problem solve and therefore you get a story made around fantasies and made up information. They are story tellers not a conveyor of facts, and are the same people who thinks the world if coming to an end because someone misspelled a work or did not conjugate a verb correctly.

I am not sure why people put some much credibility on someone who happens to get a job writing for a paper. Back in time the most educated people were those who could read and write so they were given a higher status in society and lots of credibility. However, today these who wrote for papers are not the most well educated.

The revised story cited an executive from Orange as saying that the new iPhone 5c "isn't selling as well as expected because it is too expensive, and the older iPhone 4S remains an attractive, cheaper option,"

This is an odd statement, considering that the iPhone 4s is free with a contract. There will always be a market segment that will choose the no-cost option, and I wonder how Apple will address this in the long-term.

AI recently ran an article about the adoption of the iPhone 5+ preventing fragmentation. With this in mind, I'd imagine that we'll eventually see one color (white?) of the current 16GB 5c available as the free model and the full spectrum of the next-gen 5c models available at the current price. And when this happens, part of the market will still select the free option.

What I would like to know is why investors can't sue the pants off the WSJ and other prognosticators when their erroneous reports affect the stock price in a negative way. Any lawyers or paralegals around here? It's almost tantamount to libel or slander.

This reads precisely like any one of the "analysts" assessments that have been repeatedly proven incorrect.

Quote:

Originally Posted by blackbook
I said this in the other thread but it's rather apparent to me that the 5C is selling below expectations.

Whose expectations? Based on what hard facts? What are your numbers and your sources? Show your work.

Quote:

Originally Posted by blackbook
Retailers have been overstocked with the device since launch which means Apple probably anticipated higher demand for the 5C.

Having significant inventory is not the same as being "overstocked". What criteria are you basing this statement on? "Overstocked" implies more production than sales potential. Since there's no actual data to go on other than the 5c had a stellar opening weekend (even if dwarfed by 5s sales), and carriers report 5c selling better than most other manufacturers models, there's nothing to base this on. The so-called supply-chain and channel checks are, as has been shown repeatedly, inaccurate at best as they are not comprehensive. It's right up there with asserting the Sun goes 'round the Earth, because looking at the one data point (the apparent motion of the Sun from the vantage point of the spinning Earth) must mean it's fact, right? So you use a flawed methodology to make your initial assertion, which is then used to try to validate the conclusion which you've leapt to; that "Apple probably anticipated higher demand..." - a fact which you cannot possibly know (without insider information).

Quote:

Originally Posted by blackbook
Add in the fact that Apple has launched a massive global advertising campaign for the 5C and it can barely muster a 27% share of sales is also very telling.

That's the worst kind of spin. That tells nothing factual whatsoever. That 27% is of the three models of phone Apple sells. That 27% of Apples' sales is a larger number of phones than most other manufacturers models. How about the fact that Samsung, for example, is reported to have spent even more on their global marketing for the Galaxy line, and their flagship can't even manage the same level of sales as the 5c?

Because the data is incomplete, at best, I can take all that same information and come to a completely opposite conclusion, ready for it?

Apple's command of the supply chain has allowed them to keep retailers flush with inventory despite selling through millions of units in the blowout first weekend of sales. Additionally, the sales of the 5s were even higher than expected, topping 5c sales by ~2:1. However, despite the unprecedented consumer demand for the 5s which has constrained initial supply, Apple is only estimating a short 2-3 week delay to backfill that ongoing massive demand and while still maintaing adequate production levels for the 5c, further emphasizing their ability to continually manage a highly complex supply chain.

You have to remember that most journalist fail to understand math and science thus the reason they went into the liberal arts. They can not do, so they write. They lack the ability to critical think, analyze and problem solve and therefore you get a story made around fantasies and made up information. They are story tellers not a conveyor of facts, and are the same people who thinks the world if coming to an end because someone misspelled a work or did not conjugate a verb correctly.

I am not sure why people put some much credibility on someone who happens to get a job writing for a paper. Back in time the most educated people were those who could read and write so they were given a higher status in society and lots of credibility. However, today these who wrote for papers are not the most well educated.

Face it they just rewrote the story of chicken little.

I wouldn't write home about your ability to write either..... I am sure they'd consider it even.

(And, in case you're wondering, I did not go into liberal arts.)

Tim Cook is gay, believes in climate change, and cares deeply about racial equality. Deal with it (and please spare us if you can't).

What was the sales ratio of iPhone 5 and 4S during the last year? Was it also near 64% and 27% , like the iPhone 5S&C ? If so this is all smoke and no fire.

That is a short sighted analysis.

This isn't the 4S compare to the 5.

The 5c is a brand new model, completely redesigned and engineered, with a brand new massive marketing campaign that 4s never had, nor the 4 before it, et al. The 5c is being sold on its own merits that the 4s wasn't -- the 4s was merely last years discounted model ... The 5c is a multi-colored party in your pants!

So this is the real story -- the 4s sold something like 24% of total iPhone sales during launch. But the 5c was a major investment on Apple's part and yielded only a 3% gain in sales? Arguably that's the average amount Apple could expect sales to increase from year to year, as I believe Apple has continually grown market share each year since the iPhone's introduction.

Now, if Apple could gain 3% from typical annual brand growth without doing anything, what exactly did they gain from the massive expenditure in the 5c by completely redesigning the 5, upgrading the internals and launching a massive international marketing campaign? Even if the 5c can be proven to account for the entire 3% growth in launch sales over the 4s last year, did that really justify or even recoup Apple's massive investment?

That's the real story. And it looks like Apple's investment squarely did not pay off.

The 5c is a brand new model, completely redesigned and engineered, with a brand new massive marketing campaign that 4s never had, nor the 4 before it, et al. The 5c is being sold on its own merits that the 4s wasn't -- the 4s was merely last years discounted model ... The 5c is a multi-colored party in your pants!

So this is the real story -- the 4s sold something like 24% of total iPhone sales during launch. But the 5c was a major investment on Apple's part and yielded only a 3% gain in sales? Arguably that's the average amount Apple could expect sales to increase from year to year, as I believe Apple has continually grown market share each year since the iPhone's introduction.

Now, if Apple could gain 3% from typical annual brand growth without doing anything, what exactly did they gain from the massive expenditure in the 5c by completely redesigning the 5, upgrading the internals and launching a massive international marketing campaign? Even if the 5c can be proven to account for the entire 3% growth in launch sales over the 4s last year, did that really justify or even recoup Apple's massive investment?

That's the real story. And it looks like Apple's investment squarely did not pay off.

I've said this before in the other thread- people can't wrap their head around it for some reason.

There were 9 million sold opening weekend this year, and 6 million opening weekend last year. So even if the percentage was the exact same (which it likely is more for the 5c for the data we have)- it's still a 50% increase in units sold. That's remarkable. Both the 5s and 5c are huge successes over their predecessors.

The 5c is a brand new model, completely redesigned and engineered, with a brand new massive marketing campaign that 4s never had, nor the 4 before it, et al. The 5c is being sold on its own merits that the 4s wasn't -- the 4s was merely last years discounted model ... The 5c is a multi-colored party in your pants!

So this is the real story -- the 4s sold something like 24% of total iPhone sales during launch. But the 5c was a major investment on Apple's part and yielded only a 3% gain in sales? Arguably that's the average amount Apple could expect sales to increase from year to year, as I believe Apple has continually grown market share each year since the iPhone's introduction.

Now, if Apple could gain 3% from typical annual brand growth without doing anything, what exactly did they gain from the massive expenditure in the 5c by completely redesigning the 5, upgrading the internals and launching a massive international marketing campaign? Even if the 5c can be proven to account for the entire 3% growth in launch sales over the 4s last year, did that really justify or even recoup Apple's massive investment?

That's the real story. And it looks like Apple's investment squarely did not pay off.

The 5C isn't the flagship and you can't compare percentages that way with any real meaning with out the total number.

Yes. The 27% of Apple's sales of iPhone is huge considering it's essentially an iPhone 5. With the price difference, I didn't expect the 5c to be the highest demand model. And it's possible that the profit margin on the 5c is higher (in percent of unit price) if indeed it uses mostly iPhone 5 parts (which at this point in time are cheaper than the 5s parts). Seems like the 5c is highly successful. I don't know what Apple's expectations were, but I don't see where they would be disappointed at all.

You might want to wait until November to see the October numbers on that chart. 3 days worth of data, intro data at that, doesn't tell us much about the ongoing success of a product. Especially when 2 of the carriers were selling more of the S4.

If the 5c is still in the #2 spot in 2 of the carriers for October then I'd say it is selling well in the US.